Energy Prospectus

Opening Prices:
> WTI is down $0.29 to $89.87/bbl, and Brent is down $0.52 to $93.18/bbl. < WTI was up $0.61 to $90.77 at the time of this post.
> Natural gas is down -0.3c to $2.705/MMBtu.

AEGIS Notes
Oil

Oil heads for a third straight weekly gain amid growing supply concerns

Saudi Arabia and Russia’s output cuts expected to cause a significant supply deficit through the end of 2023
IEA and OPEC+ forecasted crude deficits of 3 MMBbl/d and 1.2 MMBbl/d for Q4 2023 < My bet is at OPEC's forecast is more accurate.
Yesterday, WTI and Brent reached year-to-date highs of $91.1/Bbl and $94.6/Bbl, respectively
In August, China's economy stabilized due to increased consumer spending and government stimulus, despite ongoing property sector weakness
Additionally, the ECB increased the main refinancing rates by 25 bps to 4.50%, indicating a potential end to its rate hikes

China hits new high in oil processing as refiners ramp-up rates (Bloomberg)
China's oil refiners reached a record processing volume of 15.3 MMBbl/d in August, primarily driven by peak summer demand and rising fuel exports
Amid summer travel, especially family road trips during school breaks, and a surge in domestic air travel, Chinese refineries are operating at record rates, further intensified by September's construction uptick
In September, Chinese refineries are set to boost exports, especially diesel, spurred by rapid fuel shipment growth and a significant 12-million-ton quota or 88.2 MMBbl
In August, China's oil demand surged by 23% year-on-year to 14.7 MMBbl/d, with imports exceeding 12 MMBbl/d and domestic output rising 3.1% to 17.5 million tons

Natural Gas

Natural gas moved lower Friday morning amid a slight bearish turn in weather for the two-week forecast

Yesterday, the EIA reported a historically bullish net injection into underground gas storage
However, analysts were expecting a smaller injection of 50 Bcf versus the reported 57 Bcf build
Total working gas inventories increased to 3,205 Bcf, which is 203 Bcf higher than the five-year average of 3,002 Bcf

AEGIS notes that anomalous heat in July and August has likely reduced Lower 48 gas inventory levels by about 170 Bcf versus climate normals
Combined, July and August were the 6th warmest in terms of cooling-degree-days (CDDs) in at least the past 129 years

Freeport LNG reported more normal natural gas consumption after experiencing unplanned outages for the past seven days
Gas intake into the facility recovered to 1.89 Bcf/d Friday morning from a low of 0.29 Bcf/d
The recovery of Freeport LNG brings the total U.S. LNG feedgas to 13.23 Bcf/d – close to the highest level since early July < If total U.S. LNG exports stay over 13 Bcf through Q1 2024, it should balance the U.S. gas market and push HH ngas over $4.00 in 2H 2024 as two more large LNG export facilities come online.

Trading Economics at 3PM ET

"WTI crude futures strengthened above $90 per barrel on Friday, scaling fresh ten-month highs amid an improving global demand outlook and tightening supplies. The US oil benchmark is also up nearly 4% this week and is on track to advance for the third consecutive week. On Thursday, China’s central bank cut cash reserve requirements for all banks to boost the country’s economic recovery, lifting the demand outlook in the world’s top crude importer. Growing expectations that major central banks are nearing the end of their tightening cycles also aided sentiment further. On the supply side, OPEC, the US government and the International Energy Agency all predicted an oil market supply deficit in the fourth quarter due to extended production cuts by Saudi Arabia and Russia."

"US natural gas futures pared gains to trade below $2.7/MMBtu, following a larger-than-expected weekly increase in gas storage. The latest report from the EIA indicated that US utilities added 57 billion cubic feet (bcf) of gas to storage last week, surpassing market forecasts that anticipated a 48 bcf increase. Still, gas output was expected to hit a two-month low on Thursday and gas flows to US LNG export facilities were on the rise. However, LNG feedgas was expected to reach only 12.4 bcfd due to reduced feedgas at the Freeport LNG facility. Furthermore, the Cove Point LNG export plant in Maryland was scheduled to undergo planned maintenance from September 21 to 29. Also, the onset of seasonally cooler weather was leading to reduced air-conditioning usage and lower gas consumption in the short term."
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Despite WTI oil heading for a close near $91/bbl and HH ngas prices staying above the $2.50 price used in my Q3 forecasts, our Sweet 16 are all trading lower today. This is what I call "Market Risk". An overall market selloff in reaction to the UAW strike is causing fund managers to move some money to the sidelines. Fear of the Fed continues to be a problem. Hang tough because the supply/demand fundamentals point to even higher oil prices over the next few months.

Closing Prices:
> Prompt-Month WTI (Oct 23) was up $0.61 on the day, to settle at $90.77
> Prompt-Month Henry Hub (Oct 23) was down $-0.064 on the day, to settle at $2.644

WTI moved over $90 much sooner than I expected. I now think there is a good chance it goes over $100 within a few weeks. There is some resistance at $92, but clear sailing to $100 after that.

HH natural gas prices are doing what I expected. LNG exports have picked up, which should help get the gas price over $3.00 by the end of October, but it will take a cold December to keep it there. DEC23 NYMEX contract closed at $3.338 today. It becomes the front month at the end of October.